Wintery Knight

…integrating Christian faith and knowledge in the public square

Economist Thomas Sowell explains why wealth redistribution doesn’t work

Thomas Sowell, an economist for the people

Thomas Sowell, an economist for the people

A whole slew of people are linking to this article by famous economist Thomas Sowell.

Excerpt:

The history of the 20th century is full of examples of countries that set out to redistribute wealth and ended up redistributing poverty. The communist nations were a classic example, but by no means the only example.

In theory, confiscating the wealth of the more successful people ought to make the rest of the society more prosperous. But when the Soviet Union confiscated the wealth of successful farmers, food became scarce. As many people died of starvation under Stalin in the 1930s as died in Hitler’s Holocaust in the 1940s. [Professor Sowell is referring to the forced collectivization of the Ukraine.  If you want to inform yourself of the horrors thereof, I recommend  Robert Conquest, The Harvest of Sorrow: Soviet Collectivization and the Terror-Famine, Oxford UP, 1986.]

How can that be? It is not complicated. You can only confiscate the wealth that exists at a given moment. You cannot confiscate future wealth — and that future wealth is less likely to be produced when people see that it is going to be confiscated. Farmers in the Soviet Union cut back on how much time and effort they invested in growing their crops, when they realized that the government was going to take a big part of the harvest. They slaughtered and ate young farm animals that they would normally keep tending and feeding while raising them to maturity.

[...]Among the most valuable assets in any nation are the knowledge, skills, and productive experience that economists call “human capital.” When successful people with much human capital leave the country, either voluntarily or because of hostile governments or hostile mobs whipped up by demagogues exploiting envy, lasting damage can be done to the economy they leave behind.

Fidel Castro’s confiscatory policies drove successful Cubans to flee to Florida, often leaving much of their physical wealth behind. But poverty-stricken refugees rose to prosperity again in Florida, while the wealth they left behind in Cuba did not prevent the people there from being poverty-stricken under Castro. The lasting wealth the refugees took with them was their human capital.

Stuart Schneiderman had this to say about the piece:

If the productive members of society are no longer working for themselves and their progeny they are going to be less productive. They have less incentive to produce when more of what they produce, or more of the profit, is going to be taxed or confiscated.

Besides, when you confiscate wealth people will resist and will spend more of their time and energy trying to keep what they have earned. This time and energy could be used for more productive activities.

Since wealth exists in assets whose value is determined in a market, a regime that confiscates assets will force the wealthy to liquidate their assets, thus lowering the value of everyone’s assets and making it far more difficult to attract investment capital.

I was happy to receive the 4th edition of Thomas Sowell’s “Basic Economics” textbook from one of our readers in New York city. (Thanks Tom!) If you are a Christian who is interested in economics, I really recommend that you pick up “Intellectuals and Society“, which is a great introduction to his thought.

I once was courting a young homeschooled lady who was skeptical of university degrees. She read one Thomas Sowell book, then read 5 more – all within a 6 week period. She then went on to do a B.A. in economics. If you are a Christian looking to branch out into economics, Thomas Sowell is your man. You can’t read just one of his books. It’s absolutely impossible.

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9 Responses

  1. Thanks for re-blogging this post. I want everyone to know about Thomas Sowell.

    Regarding your brothers view – I find it to be very strange. In the countries where people are encouraged to make new products and services and hire people and try to make a profit, the poor do the best. Not only can they easily find jobs because of all the people trying to hire help, but the more products and services there are, the lower the prices go and the better the quality gets. Competition favors the consumer.

  2. SLIMJIM says:

    Sometimes I wonder if left leaning politiicians might have studied economics…

    • No, lately they all seem to be lawyers, which is not a profession for running an economy. The Canadians are doing great with their Stephen Harper, though. He has the BA and MA in economics, so he knows what he is doing. I wish Thomas Sowell would be President.

  3. bridget says:

    You can only confiscate the wealth that exists at a given moment. You cannot confiscate future wealth — and that future wealth is less likely to be produced when people see that it is going to be confiscated.

    The way to confiscate future wealth is to create debt. (As I keep pointing out, ad nauseum, the student loan bubble is too obviously stupid to be anything but deliberate.) The problem is that the money that goes to servicing debt does not go towards creating more wealth or towards lifting up society.

  4. J.W. Wartick says:

    Well I’m reading “The Bias Against Guns” thanks to your recommendation, and I’m enjoying it greatly. I think I’ll also get Sowell’s book from the library and read it.

  5. tflander says:

    I’m working on a Toastmaster speech on wealth. WK, I’ll shoot you a copy when I’m done writing it.

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